SUMMARY OF STAGECOACH (HOLDINGS) LTD AND FORMIA LTD: A REPORT ON THE ACQUISITION BY STAGECOACH (HOLDINGS) LTD OF FORMIA LTD

On 29 May 1990, the Secretary of State for Trade and Industry asked us (see Appendix 1.1) to investigate and report on the acquisition by Stagecoach (Holdings) Ltd (Stagecoach) of Formia Ltd (Formia).

In order to establish whether a merger situation qualifying for investigation exists, we are required to determine whether, following the merger, Stagecoach supplies over 25 per cent of local bus services in a substantial part of the United Kingdom. In our view, the area specified in the terms of reference 1 (the county of East Sussex, the county of West Sussex other than Crawley, and the districts of Ashford, Shepway and Tunbridge Wells in the county of Kent) represents a substantial part of the United Kingdom. Following the merger, Stagecoach supplies over 25 per cent of registered bus miles in the reference area.

Southdown Motor Services Ltd (Southdown), which was acquired by Stagecoach in August 1989, is the main operator of bus services in the reference area. Until 1987, it had not operated bus services to any extent in the Hastings, Rother, Shepway or Ashford parts of the reference area. From 1987 until recently, however, it participated with Eastbourne Buses Ltd (EB) in a joint company, Hastings Topline Buses Ltd (Topline), which operated services mainly in Hastings and Rother in competition with Hastings and District Transport Ltd (H&D). Southdown took full control of Topline in September 1989. Formia was the holding company for H&D which was still, at the time of the merger, the main operator of bus services in Hastings and Rother. During 1989, H&D established services in Eastbourne, in competition with Southdown and EB in that town.

Competition in Hastings and Eastbourne had been to the benefit of passengers in both frequency of services and fares, but Topline had been operating at a significant loss, and H&D's financial performance had also been poor. The effect of the merger, however, was virtually to eliminate competition on many commercial services in Hastings and Rother. Following the merger there has also been little competition for contract services in Hastings or Bexhill.

There are no other major operators located close to Hastings or Bexhill, which are surrounded by rural areas with few commercial services. In the circumstances of this case, we do not believe that competition from other operators or potential competition from new entrants would be sufficient to offset the loss of competition in the Hastings or Bexhill areas, but there would remain a degree of competition between Southdown and EB in Eastbourne. In our view the creation of a dominant position in Hastings and Bexhill removes a main constraint on the fares and tender prices that can be charged, and the main stimulus to efficiency and to the improvement of services, and may be expected to lead to higher fares and tender prices and to lower standards, quality and frequency of service and less choice. We are also concerned that the strengthening of Stagecoach's position could weaken other operators, and that Stagecoach could, by future acquisitions, increase its dominance further. We have therefore concluded that the merger may be expected to operate against the public interest.

We believe, however, that it would not be appropriate to recommend the divestment of H&D from Stagecoach. Divestment is likely to mean that in this limited area the existing dominant supplier merely gives way to another, and would also risk disruption of services and inconvenience to passengers while the change is being effected. We have therefore recommended a number of measures to improve local accountability, to prevent short-term retaliation against new entrants, to notify further acquisitions, and to limit the cost of tenders. We believe that these measures would be more effective than divestment in remedying the adverse effects of the merger.

1 A map of the reference area is set out in Appendix 1.2

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Last Revised: June 1999